Solvay sees Southern France gas shortage as suppliers target Asia

Solvay, a Belgian chemicals company, said a natural gas shortage has emerged in southern France as suppliers continue to bypass the region in favor of faster growing markets in Asia.

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By FRANCOIS de
BEAUPUYBloomberg

Solvay, a
Belgian chemicals maker, said a natural gas shortage has
emerged in southern France as suppliers bypass the region in
favor of faster growing markets in Asia.

The premium
represents 25% on gas prices versus the rest of
Europe, Philippe Rosier, president of Solvay Energy
Services, said in an interview. Its adding to the
competitiveness problem of industry in the south of
France.

The shortage of
natural gas, widely used in industry applications, for furnaces
and fertilizer, and in households for cooking, is adding to the
woes of French industry, which is already reeling from
Europes economic woes.

European
chemical companies Solvay, Arkema and Ineos Group have
operations in southern France and the Rhone Valley.

Southern France
is also losing out as the main pipeline connecting the region
to north European gas networks has limited
capacity.

A shortage in
gas supplies traded on the Point dEchange de Gaz Sud, or
PEG Sud, pushed the difference in day-ahead gas prices versus
its northern France counterpart PEG Nord to a record in
December, according to the Commission de Regulation de
lEnergie.

Intensive gas
users in the south of France have to buy part of their gas on
the spot market and the price spread has catastrophic
consequences on industrial sites in the region, said
Daniel Marini, director of economic and international affairs
at French chemical makers federation UIC.

Its
a real issue, said Gilles Galinier, a spokesman for
Arkema, which makes fluoro-gases and polymers in the
region.

US
Capacities

The north-south
divide in gas should be eliminated at some point by merging
prices, Rosier said. That would in effect mean gas users in the
north subsidizing those in the south.

As a result of
high production and fuel costs, petrochemicals makers, including
Paris-based Total, are shutting European ethylene plants while
rivals ExxonMobil and others add capacity in the US to benefit
from cheaper energy. France banned shale gas drilling
thats driving the resurgence in the USs industrial
base. Ethylene derivatives are used to make everything from
plastic bags and packaging to car parts and window frames.

Hydraulic
fracturing, used to recover shale gas by blasting underground
rocks with water, sand and chemicals, has increased US gas
production. That has made US ethylene production about 75%
cheaper than two-thirds of global competitors who rely on
naphtha as a raw material, according to Bloomberg.

Raw-Material Costs

Its
prompting companies from Dow Chemical to Exxon to invest in new
ethylene plants in the US, where capacity is set to rise by 10
million tons, or 40%, by 2017 or 2018, Jean Pelin, executive
director at French chemical federation UIC, said at a Jan. 9
press meeting near Paris.

When new plants
are set up, the extra production will go first to local
customers in the US, then to Latin America and Asia, said Jose
Mosquera, director of industrial policies at chemical lobby
group Cefic, based in Brussels. Such distribution is a concern
for Europe, he said.

With lower
raw-material costs, the transfer of production of some
materials, such as methanol, ethylene and derivatives, to the
US has started, said Solvays Rosier. Solvays energy
bill, which amounted to 1.25 billion euros ($1.7 billion) in
2013, would have been 300 million euros less had the price of
gas in Europe and the US been on par, he said.

Seeking
Alternatives

Ethylene
capacities are set to fall by 4 million tons in Europe in coming years as Total and
rivals shut steam crackers amid struggling construction and car markets, and
increased competition from Middle East imports, Pelin said.

With fuel costs
set to stay high in France, companies are now looking for
alternatives. Pelin will be part of a French delegation
traveling to Iran in early February to revive ties if the
embargo on the Islamic state is lifted under an international
deal aimed at curtailing nuclear activities.

It would take
at least until 2020 to build liquefied natural gas export
infrastructure in Iran, if supplies were available to trading
partners, according to Jean-Marie Dauger, executive vice
president of GDF Suez, the former French gas monopoly.

I would
welcome a long-term supply agreement with Iran, said
UICs Pelin. The worlds biggest gas reserves
are in Iran, so theres a potential revolution.

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